A recent report revealed that 18 percent of American bank customers overdrew their accounts in the last year, resulting in overdraft fees, and that many customers have a very limited understanding of overdraft rules.
The report, titled “Overdraft America: Confusion and Concerns about Bank Practices,” was commissioned by The Pew Center on the States. The report found that more than one-third of all respondents did not know that their banks offered overdraft coverage until they overdrew their account, AL.com reports.
Most consumers said that they would rather a transaction be declined by the bank than be charged a subsequent overdraft fee. Approximately one-third of respondents closed their checking accounts because of overdraft fees.
“It is important to ensure that checking accounts do not lead to financial distress because of hidden, unexpected and costly fees like overdrafts,” Pew said in the report, according to AL.com.
CEO Bill Hardekopf of the consumer credit website Lowcards.com said that banks have tried to devise new means of revenue in the wake of mounting Dodd-Frank regulations. In 2011, according to research from Moebs Services, banks collected almost $30 billion in overdraft fees. Hardekopf said that customer enrollment in these programs is not necessary.
“Opting out is an easy way for consumers to avoid an expensive fee,” Hardekopf said, AL.com reports. “If you don’t have enough money in your account and you don’t have overdraft protection, then the debit transaction will simply be declined.”
The Consumer Financial Protection Bureau announced in February that it would begin examining bank overdraft policies, particularly whether the marketing materials and customer service scripts used by banks could be seen as confusing for consumers. The CFPB is currently seeking public comment on a penalty fee box that would be included on bank statements, ensuring consumers know how much their banks charge for overdraft fees.
In 2010, the Federal Reserve established rules that would require banks to receive customer permission before enrolling the customer in overdraft protection. Following the institution of the rules, however, banks continued to aggressively market overdraft protection programs, according to AL.com.